By Lynne Gowers on 21st July 2015

Risk management for freelancers

They say that success is 90 per cent a matter of attitude, and there’s certainly a lot of truth to that when it comes to going freelance. After all, when you’re leaving your permanent employer behind and seeking to make it on your own, it goes without saying that it’s crucially important for you to have confidence and belief in your own capacity to succeed.

Therefore, when embarking on a freelance career full of hopes and ambitions, it can be tough to consider the prospect that it might not all go exactly as you hoped. However, the reality is that sometimes mistakes and misfortunes are unavoidable, and while avoiding setbacks is always preferable, it’s just as important to know how to deal with them when they happen.

guide to liability when freelancing

Dealing with failure on a personal level is one thing, but when you’re self-employed, it’s the legal ramifications that can be a whole lot more complex. When you’re working for an employer, you’ll always have that safety net of knowing that you’re not ultimately responsible for every mistake that’s made; as a freelancer, that safety net is gone, and the buck stops with you.

As such, it’s important to make sure you fully understand the issues of liability associated with starting your own business, and make sure you’ve taken the precautions necessary to protect yourself wherever possible.

Liability for sole traders

Being a sole trader is the most popular option for freelancers, as it requires comparatively little work to set yourself up as a business, and you won’t need to worry about costly or time-consuming administrative burdens.

However, as a sole trader, you need to remember that the success and failure of your company rests entirely on your shoulders, with next to no liability protection at all. If you choose to work this way, you will be personally responsible for all of your company bills, expenses, record-keeping and losses.

Since there is no legal distinction made between you and your business, you will be held individually accountable for any debts you run up, meaning you risk fines, bankruptcy and other downsides if matters deteriorate too far.

While these risks do not negate the proven benefits of being a sole trader, they are certainly worth considering when going into business, and should affect your decision-making processes when thinking about insurance options.

Liability for limited companies

Some freelance workers choose to avoid the sole trader route and establish their business as a limited company, incorporating their business with Companies House.

While this route can be more complex and difficult to set up, there can be an upside to doing so, in that the finances of a limited company are considered to be separate from the personal finances of the business owner, unless you have given any personal guarantees or are accused of wrongful trading.

As a director of a limited company, your risk of loss is therefore restricted to money you’ve actively invested in the organisation, with no danger to your personal finances unless you act illegally. This model also makes it easier for you to split the legal responsibility and liability for the running of the firm with other partners and investors.

The importance of liability insurance

When working as a freelancer, there are plenty of ways in which things can go wrong that can leave you liable to monetary losses without the proper precautions.

For example, you’ll need to be in a position to financially deal with the full repercussions of any injuries or illnesses befalling yourself and any staff members you might have. You also need to be aware of the fact that business equipment used in your house is not necessarily covered by your existing home insurance policy – something that also applies to your car, assuming you’re using it for work purposes.

As such, it’s important to get yourself insured appropriately to make sure you and your business aren’t liable for any more costs than strictly necessary. As mentioned, this may include taking out personal, building, contents, motor and equipment cover, but should also involve investigating other business-specific forms of insurance.

If you have any employees, Employers liability insurance is a legal requirement.
Employers liability insurance will help you to cover any costs that may be accrued when offering protection for members of staff, while public liability insurance should offer some protection from lawsuits filed by members of the public in case of injury.

Professional indemnity insurance is also vital for any freelancer providing advice or professional services to other organisations, as it will help pay for any instances of a client seeking redress for losses they incur that can be attributed to your company.

By properly considering the full implications of all of these liability issues, you can make sure your company is fully prepared for any eventuality – good and bad – and position yourself for long-term success and longevity.

Written by Lynne Gowers
Disclaimer Although we attempt to ensure that the Information contained in this publication is accurate and up-to-date at the date of publication it may not be comprehensive, we accept no liability for the results of any action taken on the basis of the information they contain and any implied warranties, including but not limited to the implied warranties of satisfactory quality, fitness for a particular purpose, non-infringement and accuracy are excluded to the extent that they may be excluded as a matter of law.

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